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   Non-TechUAN - The variable distribution MLP that could go a long way


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From: Elroy10/11/2021 11:46:07 PM
   of 356
 
DTN Fertilizer Outlook
Wholesale Fertilizer Prices Expected to Continue Rising on Lower Production, Higher International Demand


https://www.dtnpf.com/agriculture/web/ag/crops/article/2021/10/11/wholesale-fertilizer-prices-expected


AMMONIA


While August ammonia prices ended at $650-$665 per short ton (t) free-on-board (FOB) for October through December in the Corn Belt, prompt prices had risen to around $800 by the end of September on the back of a much stronger increase in the Tampa ammonia contract than many were expecting.


Trader estimates indicated that September ammonia production losses may be approximately 300,000 t in Louisiana as a result of Hurricane Ida and the shutdowns at Donaldsonville, Geismar, Waggaman and Faustina.


UAN

September was largely a slow month for UAN, not because there was no demand, but owing to no producers having availability until later in the month, if any. Hardly any sellers had length on UAN to sell, and those who did were resistant to do so without knowledge of their replacement costs.

The outage at Donaldsonville was a large concern before CF announced it had restored ammonia production and was working on restoring upgrades to UAN and urea.

On the last day of September, CF released long-anticipated UAN offers at its U.S. terminals and production sites for fourth-quarter shipment, at levels around $425-$435 NOLA equivalents depending on location. Most offers centered specifically around the November-to-December timeframe and were heavily allocated with offers pulled ahead of the weekend. Last offers from CF were at the $320/t FOB NOLA level.

The higher offers pushed river terminal volumes more than $100 higher from previous offerings at $455-$460/t FOB for UAN 32% at main river locations at St. Louis and Cincinnati and at equivalent levels throughout the system, bringing liquid closer in line to urea in terms of a value per unit of nitrogen basis (see graph accompanying this article).

Plant volumes were difficult to locate after CF pulled its offers but were reported in line with terminals at $455-$460/t in eastern Oklahoma. No offers were made out of CF's Port Neal plant.

UAN prices are expected to remain strong on a bullish nitrogen complex as a whole, as well as fewer volumes expected to come from Trinidad & Tobago and Russia as the U.S. government's antidumping case continues. Next developments are expected late in November when the U.S. Department of Commerce will announce its initial subsidy rates for foreign UAN production, which may reflect equivalent tariff rates down the line unless revised.

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To: Elroy who wrote (257)10/12/2021 12:07:03 AM
From: Paul Senior
   of 356
 
Ok, if the thesis and facts are known - and there are no unknown negatives - let's see it confirmed by the market- by the rise in the stock. That's what I say. Talking here about making a big commitment to the stock. If the business prospects are really that good, and so the stock could/might/should rise really a lot, even missing the early rise in the stock could still leave room for ok entree prices (or adds for me) as the stock price continues its journey.

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To: Paul Senior who wrote (256)10/12/2021 9:37:38 AM
From: Paul Senior
   of 356
 
Assuming we'll have distributions about $20 per unit over the next 18-36 months. I've been in stocks with questionable dividend (investors believe dividend is not sustainable) and the yield's been as high as 18%. At 10 or 11%, there are a number of companies and mlp's with such dividends or distributions. So in my opinion they'd compete with UAN for yield investors' attention, and UAN might be wanting. All of which means to me a range of minimum $111 (18% yield) through $167 (12%) if I could believe the distribution were sustainable for several years.
Seems to me other mlp's distributions are easier to forecast and don't seem like they fluctuate as much as I believe UAN's will in future. Another reason why I'll go with maybe a reasonable chance of seeing a 12% distribution yield. ($167) best case.

Thing is, we don't know if the presumed $20 distribution is sustainable, and it might go higher too. Until we see more in 2022, yes, maybe only up to $120 now is a safer place for buying.

My guess.

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To: Paul Senior who wrote (259)10/12/2021 10:23:57 AM
From: Elroy
   of 356
 
Ok, if the thesis and facts are known - and there are no unknown negatives - let's see it confirmed by the market- by the rise in the stock.

Yes, a rise in the stock sure does give one confidence in the bullish view.

Remember, I am no fertilizer or agriculture expert, so all of my positive comments should be received with that knowledge.

Having said that, UAN has been the least responsive to good news stock investment that I can recall. The newsflow since January 2021 has been tremendous, as far as I can tell, and the shares are still approaching what I think will be a 20% yield of the next four quarter's distributions. I think $20 is a fairly conservative estimate for the next four quarters of distributions, so $100 seems like a reasonable price today.

Hopefully a lot of the future outlook will become more clear (will the next four quarters of distributions be $12, or $36?) with the Q3 2021 distribution announcement, and clean financial results in a strong fertilizer price environment.

In other words, after we see what they do in Q3, and when we can see the futures prices in real time, we should be able to come up with a pretty good guess for Q4, Q1 and Q2.

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To: Paul Senior who wrote (260)10/12/2021 10:30:11 AM
From: Elroy
   of 356
 
if I could believe the distribution were sustainable for several years.

I don't think we're going to have that sort of visibility.

And this is where the lack of knowledge of fertilizer industry and agriculture industry and commodities in general comes in to make long term forecasting difficult.

Fertilizer prices were in the dumps from 2016 to 2020. Why? I'm not really sure. Without that basic understanding, it's hard to forecast what will pull them back down once their current uptrend reverses.

In 2021 the February cold spell, the tariffs on Russian and Trinidad and Tobago imports and then Ida all contributed to price increases which had already begun in January. Why did prices jump so strongly in January? Not really sure, so .... hard to predict how prices go next summer if there are no new major production disruptions.

Currently it seems like they'll go up for a long time, but all it takes to change that view is to have them go down for a while, and then who knows what happens next?

However, I think due to interest savings from the debt refinance the "break even" UAN fertilizer price has been somewhat reduced. So, as long as UAN is above $200/ton they're going to distribute something reasonable, and UAN today for H1 is about $550/ton, so we're way above the zero distribution prices.

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From: Elroy10/12/2021 10:32:41 AM
   of 356
 
CVR Energy Names Dane Neumann Executive Vice President & Chief Financial Officer

finance.yahoo.com

He replaces the CFO of UAN who suddenly resigned about 1-2 months ago.....

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From: Elroy10/12/2021 10:56:58 AM
   of 356
 
CVR Partners’ Coffeyville, Kansas, nitrogen fertilizer manufacturing facility includes a 1,300 ton-per-day ammonia unit, a 3,000 ton-per-day UAN unit and a dual-train gasifier complex having a capacity of 89 million standard cubic feet per day of hydrogen. CVR Partners’ East Dubuque, Illinois, nitrogen fertilizer manufacturing facility includes a 1,075 ton-per-day ammonia unit and a 1,100 ton-per-day UAN unit.


https://finance.yahoo.com/news/cvr-partners-names-dane-neumann-122300956.html


I think the first plant (Coffeyville) uses Pet Coke as the feedstock for making the fertilizers, whereas the second plant (East Dubuque) uses natural gas, same as most other fertilizer makers.


Using pet coke may be a good thing in the current high natural gas price environment.

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From: Elroy10/12/2021 4:10:44 PM
   of 356
 
Supply Disruptions Add Costs
Bottlenecks Loom for Critical Ag Supplies

https://www.dtnpf.com/agriculture/web/ag/livestock/article/2021/10/11/bottlenecks-loom-critical-ag

-- FERTILIZER. This week, the upward trend continues for the fertilizer market, showing large, year-over-year increases in all key areas. DTN Staff Reporter Russ Quinn, who focuses on retail fertilizer prices, said he has been covering these markets for more than 13 years with a data set that goes back to 2008. The industry is seeing the largest year-over-year (YOY) increases to date by that data set. Quinn reported this week these YOY percentage increases as follows: potash at up 101%, UAN28 at up 91%, anhydrous at 89% higher, UAN32 at up 83%, urea at 81% higher, DAP (diammonium phosphate) at up 67%, MAP (monoammonium phosphate) at up 78% and starter fertilizer (10-34-0) at up 40%.

Quinn noted, "These are not the highest prices we've ever seen, but we've seen prices climbing nearly a full year now, so we could easily set some all-time highs." He added that prices on these inputs tend to peak during spring and fall, when demand is at its highest.

"The people I've talked to, retailers and Extension and farmers, who are talking to suppliers and wholesalers and retailers, tell me not to expect any slowdown in prices anytime soon," Quinn said. "We've seen 11 months now of continuously higher prices. In past years, it was more a demand issue. This time, it's a supply issue, and the fact we can't get enough supply because of weather disruptions domestically and China cutting back on exports of fertilizer to the U.S. will only make it worse."

-- NATURAL GAS. DTN Refined Fuels Editor Brian Milne says it is possible natural gas prices could hit $10 per 1,000 cubic feet (MMCF) moving into 2022. Global supply issues will have a major impact on whether these price levels are realized.

"We've seen a lot of volatility in this market already, with the front month (November 2021) at $6.46," reported Milne. The previous highs, he added, were set in February 2014 during a cold period, and in December 2008, coming off of a financial crisis.

"By a historical perspective, we are at a seven-year high and ready to go to a 13-year high," he said. Milne noted that in the U.S. supplies are ample, even though they are below the five-year average. Price spikes for natural gas in Europe and Asia, however, are driving upward market trends. In parts of Europe, natural gas prices have spiked as countries move away from coal and nuclear energy. Wind energy in parts of the United Kingdom, he added, has not generated the amount of power expected this past season, leading to unexpected drawdowns on natural gas. Seasonally, Milne says, peak demand for natural gas is from October through March.

"We are going to see prices up from here as we move into the winter months. If it is very cold in Europe and Asia, expect more price spikes," he said. "We could easily get above $8 this winter, possibly over $10. But, speculating a little, there are things that could derail all of this, like a warm winter."

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To: diegosan who wrote (251)10/13/2021 2:53:07 PM
From: Area51
   of 356
 
It doesn't seem right but it seems to me that UBTI income will be taxed significantly higher in an IRA than it is a non-taxable account (certainly for amounts over 13K but less than 500K for married joint filers in a tax year). Consider the UDFI capital gains tax: In a taxable account I think you will be subject to long term capital gains tax (15% up to about 400K depending on your marital status etcetera, and then 20%) although a significant portion of the gain may be taxed as ordinary income (still only 24% for married filers to 326K) whereas the IRA will be taxed at 37% over 13K of capital gain, and then it will be taxed again as ordinary income when you or your heirs withdraw it.

And I'm not even sure that Elroy is right that on death you will get a step up in basis (Do MLP shares even in a taxable account get a stepped up cost basis on death? Perhaps not. And although the IRS may be lenient on not auditing those that do step up their cost basis in this circumstance, the IRA trustee may be a stickler and do the calculation more conservatively).

Decent article from someone that understands all this better than I do: seekingalpha.com

Good Luck, A51

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To: Area51 who wrote (266)10/13/2021 4:09:09 PM
From: Area51
   of 356
 
OK googling the stepped up basis for MLPs I found several sources that claim you are allowed the stepped up basis for MLPs and didn't see anything that claimed otherwise perusing page one of the results. Of course if Biden gets his way that may change anyway.
seekingalpha.com

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